Questions to Ask BEFORE an Economic Downturn
America is either on the verge of a recession or intense growth. Will the stock market tank or skyrocket? Trade agreements, the Federal Reserve, election results, oil prices — these factors (and many others) will be blamed or praised depending on tomorrow’s headlines.
One thing’s for sure: even if the worst-case scenario plays out, most small businesses will adapt to survive and thrive. Others will become statistics.
Before a downturn strikes, prepare your business with a well-thought-out strategy for weathering hard times. Focus on these crucial questions when determining how your business will fare:
- Will cash keep flowing into the business? Cash outflows won’t be a problem. You’ll always have expenses, but the company may need to shore up collection efforts, sell unused equipment, or renegotiate loan agreements in advance of a market downturn. The tougher the economic environment, the more crucial cash flow becomes. Start now by gaining a clear understanding of your monthly burn rate and cash position.
- Will inventory be sufficient to meet demand? Consider how to reduce inventory costs without damaging your company’s reputation or customer focus. You might implement more detailed inventory tracking systems, reduce storage costs and obsolescence by using just-in-time methods, or develop a plan to offer discounts on slow-moving items. Don’t wait until a call from your suppliers forces the issue.
- Will existing customers remain loyal? It may be far more expensive to acquire new customers than to retain clients already patronizing your business. If the economy spirals downward, your client base may be slammed. Loyal customers may face layoffs and foreclosures. Plan for that contingency. Get ready to pamper them. Offer discounts, gift cards, loyalty rewards — whatever is needed to keep them coming back.
- Will you cut costs? Many small businesses, when faced with declining market demand, slash expenses indiscriminately. Big mistake. Although prudent cost-cutting may be warranted, your actions should fit into a well-designed plan. If management panics and lays off workers, cuts inventory and scraps marketing efforts without due consideration, unintended consequences may result. Customers may turn to competitors if they can’t get adequate service or products to meet their needs. In a downturn, plan to stay visible. Create a customer newsletter, maintain an active website, attend chamber of commerce meetings, and continue to network on social media. Redouble efforts to promote your company and its products.
- Will the company have sufficient reserves to exploit new opportunities? Tough economic times don’t affect businesses uniformly. In fact, at such times skilled workers may be searching for employment. When competitors close their doors, new markets may materialize. When your company is growing and doing well, that’s the time to set aside cash reserves. You’ll be ready to take advantage of favorable conditions as they emerge.
No matter when an economic downturn hits, it’s crucial to think about how your business will handle hard times. Create or update your plan now to protect your company in the future.
As always, we hope you find our tips and news for businesses valuable, and look forward to receiving your feedback. Companies focused on growth have sought the help of Insero & Co. for more than 40 years. During that time they have consistently experienced the peace of mind that comes from knowing their CPA firm takes the concept of integrity seriously. Should you have any questions, please contact us directly.